ABA Bank Compliance - May/June, 2009

Definitions

Several terms must be defined as we begin our description of a comparative file review:

DISCRIMINATION RISK: the risk that similarly situated applicants receive different outcomes on a prohibited bas

FOCAL POINT: any combination of loan product, decision center, prohibited basis group, control group, time period, and credit decisioning process (underwriting or terms and conditions)

PROHIBITED-BASIS¹ GROUP: that group of applicants who may have been treated less favorably in relation to the institution’s underwriting or terms and conditions criteria o lending practices followed in the credit decisioning proces

CONTROL GROUP: that group of applicants who may have been treated more favorably in relation to the institution’s underwriting, terms and conditions criteria, or lending practices followed in the credit decisioning process

SIMILARLY SITUATED APPLICANTS: those nonprohibited basis applicants who share some of the creditworthiness factors that an institution considers in making credit decisions—credit scores, debt-to-income ratios, credit histories, or other factors—with applicants who fall into on or more prohibited-basis groups

MARGINAL APPLICANTS: prohibited-basis group and con group applicants who are neither clearly qualified nor clea unqualified

BENCHMARK APPLICANTS: in an underwriting review, the most-qualified prohibited-basis group applicants who were denied credit

OVERLAP APPLICANT: in an underwriting review, those approved control group applicants who are no more or les qualified than benchmark applicants

REASON FOR DENIAL: the reason(s) included on the adve action notice provided to a denied applicant

UNDERWRITING CRITERIA: those criteria that an institutio uses in determining which applicants to approve and whic applicants to deny

TERMS AND CONDITIONS CRITERIA: those criteria the institution uses in determining such aspects as price, closing fees, maturity, collateral, and escrows to offer an approved applicant